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PROCEDURES AND PRINCIPLES APPLICABLE WITH RESPECT TO THE LIMITATION IN THE DISTRIBUTION OF PROFITS OF THE STOCK CORPORATIONS

As notified via our previous Newsletters in April 2020, the Provisional Article 13 was adopted and added to the Turkish Commercial Code No.6102 (the “TCC”) via the Law No.7244 Amending Certain Laws and Aimed at Reducing the Effects of Covid-19 on Social and Financial Life entered into force on 17 April 2020, introducing certain regulations to corporate law in the light of the negative economic effects caused by Covid-19; in particular regarding dividend distribution and general assemblies, for stock corporations (i.e. joint stock companies, limited liability companies and limited partnership divided into shares).

Now on 17 May 2020, the Communiqué on the Procedures and Principles regarding the Implementation of Provisional Article 13 of the Turkish Commercial Code (the “Communiqué”) (enclosed herewith in Turkish; “6102 Sayılı Türk Ticaret Kanununun Geçici 13üncü Maddesinin Uygulanmasına İlişkin Usul ve Esaslar Hakkında Tebliğ”) is published in the Official Gazette and entered into force on the same date.

As per Article 4 of the Communiqué, between 17 April 2020 and 30 September 2020;

  • Cash dividend distribution is limited to 25% of the net profit arising from the fiscal year 2019 and
  • Annual profits arising from the previous fiscal years and free reserve funds may not be subject to distribution. This limitation shall not apply to the share capital increases to be made from internal resources (Article 462 of the TCC).
  • Moreover, the board of directors may not be authorized by the general assembly of shareholders for the distribution of dividend advances until 30 September 2020.

If, before 17 April 2020;

  1. a decision has already been adopted by the general assembly as to the distribution of dividends, but related payments have not yet been made to the shareholders either totally or partially; the payments related to the portion exceeding 25% of the net profit for the year 2019; and,
  2. a decision has been made for the distribution from free reserve funds subsequent to loss in the financial year, all payments related to the unpaid portion

shall be postponed until the date of 30 September 2020. No interest shall apply to the postponed payments.

If the managing organ (i.e. Board of directors as for the joint stock companies and the Board of managers as for the limited liability companies) was authorized by the general assembly for the distribution of dividend advances, the advance payments shall also be postponed until 30 September 2020.

Pursuant to Article 5 of the Communiqué, there are certain exceptions to the limitations in the distribution of dividends by the stock corporations. Notwithstanding the below-mentioned provisions of Article 6 of the same Communiqué, the aforementioned provisions bringing limitations to the distribution of profits shall not apply to those corporations who satisfy the following conditions:

  1. corporations that have decided on dividend distributions equal to or less than TRY 120,000, except for those who employ employees who are put on short time work allowance and/or on unpaid leave due to force majeure circumstances caused by the new Covid-19 pursuant to additional Article 2 and Provisional Article 23 of Unemployment Insurance Law No.4447 dated 25/08/1999 and who benefit from the daily cash support pursuant to Provisional Article 24 of Law No.4447, and those who used Treasury-backed credit bail in accordance with Provisional Article 20 of Public Finance and Debt Management Law No.4749 dated 28/03/2002 and with other relevant Decrees and have remaining unpaid credit debt balance,
  2. corporations that have decided on dividend distributions, provided that more than half of the dividend distribution to be made is towards the fulfilment of the capital subscription to another stock corporation fully and in cash as per the relevant provisions of the TTC,
  3. corporations that have decided on dividend distributions, provided that the dividend distribution to be made shall be used in cash in the fulfilment of the obligations that shall become due until the end of 30 September 2020, within the scope of signed loan agreements or project finance agreements. For those corporations falling under this category, the payments related to the amount exceeding the fulfilment obligation of shareholders shall be postponed until the end of 30 September 2020.

The Article 6 of the Communiqué provides that, it is obligatory to request the opinion of the Ministry of Commerce regarding the dividend distributions to be made pursuant to Article 5, in order for the matter to be discussed in the general assembly of shareholders. During the application process, the below documents shall be presented to the General Directorate of Domestic Trade of the said Ministry:

  1. a notary-approved copy of the managing organ’s decision to hold a general assembly,
  2. financial statements for the financial year of the company,
  3. profit or loss statements,
  4. for the corporations who will make dividend distributions pursuant to the exception foreseen in Paragraph (a) of Article 5; an attesting document to be obtained from the relevant establishments stating that the supports in the mentioned paragraph are not being benefited from,
  5. for the corporations who will make dividend distributions pursuant to the exception foreseen in Paragraph (b) of Article 5; for those who have the right to obtain more than the half of the dividend distribution to be made, a document attesting their requirement to fulfil the capital subscription towards another stock corporation,
  6. for the corporations who will make dividend distributions pursuant to the exception foreseen in Paragraph (c) of Article 5; a document attesting their requirement to fulfil their obligation within the scope of loan agreements and project finance agreements. 

Our Law Firm remains at your disposal for any further clarifications you may need about the subject matter.

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